What does a city do when it is broke?

Of the 7,800 bonds in the U.S. secured by state or local governments, only 25 are currently speculative-grade, or junk-bonds, rated by Moody’s Ba1 or lower. Only municipalities received such low ratings, and the reasons vary. Moody’s report, “A Look at Speculative-Grade Local Governments in the Wake of the Recession,” details the economic issues that have lead each into junk-bond territory. 24/7 Wall St. has analyzed the nine worst cities, whose credit rating is Ba2 and lower.

So what tools can cities use if they are broke AND are considered no worthy of having anyone loan them money? How do you get a tax base back, when the value of homes, business, etc. is plummeting? If you already aren't bringing in enough revenue, can you cut taxes in hopes of spurring development?

A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. -Douglas Adams

The sad fact is that some cities are destined to die unless they somehow reinvent themselves. It's an unfortunate situation but I don't see how a city can realistically survive if its tax base is evaporating. Some of these places made large investments on the assumption that the tax base would steadily rise but those plans obviously didn't pan out. Then when you add in mismanagement, you get a recipe for disaster.

I'm not fond of the idea but the concept of the state declaring a fiscal emergency for a jurisdiction and then taking over does have some merit. Some of these jurisdictions just don't have competent elected officials that have an understanding of the issues or willingness to take the political risk to fix things. Then a lot of these jurisdictions don't have much to work with to begin with so can't hire the talent to fix things.

I think the consolidation of governments is another way of addressing these situations. Like I don't see a way to fix an urban doughnut situation unless more resources are allowed to reach the center. The urban centers are often where the all the unwanted elements from the suburbs end up so it makes sense, with their limited resources, that the urban core will continue to deteriorate. Of course the suburbanites are probably going to be unhappy about supporting the urban center with their taxes but that may be necessary for the greater good of the region.

Obviously politics will get in the way of finding true fixes for many of these situations which is very unfortunate. Maybe when a city is on the verge of bankruptcy, it could trigger some mechanisms at the state or federal level to try to address the situation. There's just got to be a point when someone else takes over when a jurisdiction is unwilling or unable to do what is expected of it.

Dis-incorporation is certainly an option. Isolated ultra-rural munis vanish on a somewhat regular basis, with any remaining service needs then being taken over by their counties.

If it is a suburban city within a larger metro area, I can see a mechanism being put into place that allows its dissolution and rapid annexation by a neighboring city. For example, I sometimes wonder how long it will be before some of those inner southern Cook County, IL suburbs will be able to continue to hang on before they try to join Chicago.

The worst-case scenario, IMHO, is the 'strangler fig' situation where the central city in a metro fails, the suburbs want nothing to do with it and they have the political clout to ensure that. In those cases, I consider it a plausible option for the central city to ultimately disband itself, in which case the suburbs would be on the hook anyways through their county tax bills.

All (or at least many) the hipsters I know went to private colleges and have well-off parents. I think the "looking scrubby" is part of the point, that they brush off societies' norms while at the same time using their parents money. Thus the question - there are poor hipsters?

Several years ago, there was talk of dissolving the City of Buffalo. The city's hundreds of armchair planners believed that an unincorporated Buffalo would "go to the county". They were all wrong. New York doesn't have unincorporated county areas, and the area would revert to the long-dormant Town of Buffalo.

Growth for growth's sake is the ideology of the cancer cell. -- Edward Abbey

Several years ago, there was talk of dissolving the City of Buffalo. The city's hundreds of armchair planners believed that an unincorporated Buffalo would "go to the county". They were all wrong. New York doesn't have unincorporated county areas, and the area would revert to the long-dormant Town of Buffalo.

Amazingly, when the Comptroller of the COB moved up the political "foodchain" to become the County Exec, the insolvency problems that plagued Buffalo during his watch shortly surfaced at the county level while the City, under the guidance of a state-appointed control board, regained its fiscal stability.

It isn't easy. In fact, this is by far the hardest issue I have dealt with in my professional life. In fact, my next job will almost certainly not be in administration. I have no one to blame but myself, I took the job.

Smaller cities fall harder in many ways. Ours has shrunk roughly 7000 people over about a 30 year period. Then you have some bad book keeping and capital projects that go over budget. Add to the fact that basically none of the choices are politically popular and the climate politically in general is poor and you have a mess. Then throw in the continued flawed ED strategy of pursuing the giant fish (plant) and using basically all your ED resources with little return and it does not look good. A lot of the people can't think beyond the industrial past either.

The budget shifts more and more as a % to public safety. Soon, our general fund budget will go from about 65% public safety to probably about 80%. Also, its unlikely over time the City can maintain the fire and ems services at the same level. It may have no choice on EMS eventually.

It isn't easy. In fact, this is by far the hardest issue I have dealt with in my professional life. In fact, my next job will almost certainly not be in administration. I have no one to blame but myself, I took the job.

Smaller cities fall harder in many ways. Ours has shrunk roughly 7000 people over about a 30 year period. Then you have some bad book keeping and capital projects that go over budget. Add to the fact that basically none of the choices are politically popular and the climate politically in general is poor and you have a mess. Then throw in the continued flawed ED strategy of pursuing the giant fish (plant) and using basically all your ED resources with little return and it does not look good. A lot of the people can't think beyond the industrial past either.

The budget shifts more and more as a % to public safety. Soon, our general fund budget will go from about 65% public safety to probably about 80%. Also, its unlikely over time the City can maintain the fire and ems services at the same level. It may have no choice on EMS eventually.

Well said. I would say that you've painted the situation in most medium to small cities in the East and the Midwest. I'm not sure if the cities in the South and West, but I suspect it's likely. It's particularly tough when the states cut their aid to communities but still require cities to provide/maintain/meet certain standards and/or services.

We are about to sign a 25 year consent order with the EPA to separate our sanitary and storm sewers. We have a decent sized LMI population and I don't know how a city like this can come up with 65 million over that time.

At the first sign of trouble, shed staff, cut salaries across the board, and institute mandatory furlough days for civilian staff. After two years, force uniform employees to also incorporate furlough days, but at a significantly reduced number. Keep shedding staff until there's no one left to turn on the lights.

At least this is what my city has done. So far, we can still afford to turn on the lights, but we have cut services to the point that even the City Council members are complaining about lack of services.

Some of the last staff cut: Economic Dev. They are now down to about 1/4 of what they were in early 2008. Mostly all they do now is monitor the TIFs and such. Very little development that needs ED in our city - we're mostly built out.

"We do not need any other Tutankhamun's tomb with all its treasures. We need context. We need understanding. We need knowledge of historical events to tie them together. We don't know much. Of course we know a lot, but it is context that's missing, not treasures." - Werner Herzog, in Archaeology, March/April 2011

Colo Spgs shut off water to irrigated areas and our drive through recently showed the large, stately trees didn't care for it at all & the public tree canopy is in danger of severe decline.

Being from Colorado Springs, their issue is more the residents refuse any sort of tax increases despite city council pleading for them. Cutting off all the water and street lights was just as much a punitive effort as it was a cost saving one. City council was visibly trying to show residents what their taxes pay for but after like 2 years, it seems the residents still don't care. It's kind of funny too since the economy in the city isn't hurting enough to justify that degree of austerity but that's what you get when the construction industry slows down and people vote down any and all tax increases.

All (or at least many) the hipsters I know went to private colleges and have well-off parents. I think the "looking scrubby" is part of the point, that they brush off societies' norms while at the same time using their parents money. Thus the question - there are poor hipsters?

Off-topic:

In DC I knew tons of poor hipsters, they all had non profit or journalism jobs, huge student loan debt from the posh private school they hated and lived 4 to a rowhouse. Parents will educated and well off but they were not bankrolling their children. Mommy and daddy did keep them well heeled in latest Apple product for birthdays and Christmas.

Hipster Joke: Why did the hipster burn his mouth on the pizza?

Becasue he ate it before it was cool

As for what a city needs to do when its broke it will probably become more of an issue as economic development investments fail to materialize or the city run pension gets upsidedown. I think Mike is dead on with what he mentioned. Others will have to raise taxes, cut services, sell assets or seek protection from the state.If they take these actions it could create a death spiral for a city. Letting small ultra rural cities become ghost towns has worked in the past. Not sure how it would work with a city with 50,000 or more.

I think it will be more interesting to see what happens if a state needs protection from its creditors. There is no law that spells out how a city defaults or reworks it debt. Can a creditor seize the state legislative building or a prison?

"If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

There are many examples of cities that have shrunk. Europe has many. We are a newer continent, so maybe now is just manifesting itself.

How do you get everyone to open their mind to a different way to adapt to change and survive? Many remember, at least from their childhoods, the prosperous company town days when most everyone worked for one of 3-4 employers. Now they are either gone or more automated. Getting a plant with high employment is a needle in a haystack. I was involved in a competition for a 900 employee steel plant not long ago. There were over 25 sites that made presentations. Everyone throwing the kitchen sink at it. 15 years of TIF? One wonders about this wisdom of this as one goes through it.

America was successful when the local economies supported themselves. Somehow we have to get back to that.

I don't know what areas they have left to squeeze pennies from - if most resources have already been concentrated in public safety and even that job can't be done well, where do you go from there? There've been calls to break up the city into smaller autonomous townships, but won't the end result just be, say, twenty-five bankrupt towns rather than one bankrupt city? If a smaller town in/near Detroit like Highland Park still risks going bankrupt, won't that happen to Detroit's successor towns too?

Read this interesting article in the NYT about Benton Harbor, Michigan which is under the control of one of those emergency managers. Basically corporate interests have begun to gentrify parts of the area but it's not benefiting the original residents who are still in extreme poverty. There's so little state aid and tax revenue that they essentially have to rely on the private sector to get things moving there again.